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US President Bill Clinton yesterday imposed tough economic sanctions on India, cutting off all bilateral economic aid and loans by American banks to companies in India.

Speaking with Chancellor Helmut Kohl by his side, Clinton criticised India for making a terrible mistake before announcing that he had decided to impose the sanctions under a 1994 US non-proliferation law.

Clinton made the announcement even before getting into the details of his official talks with Chancellor Kohl. I would like to make a comment on the nuclear tests by India before I say something about our discussions, he said. Clinton said the tests had created dangerous instability in the region and, therefore, New Delhi must face sanctions in accordance with American law. The Indian tests demanded an unambiguous response, he said.

The sanctions law forces a cut-off of US military and economic assistance to India, and, of potentially greater economic consequence, requires the US to oppose loans to the country by international lending agencies. It also bars US bank loans to the Indian government, except for food purchases, and restricts military exports to the country.

Clinton said he had been an ardent supporter of Indo-US relations and was aware that India could be a great country in the 21st century. But, a country with a 50-year vibrant democracy has made a terrible mistake, he said and hoped that India would take a different course now, implying that it must sign the NPT and the CTBT without any conditions.

Clinton appealed to Indias neighbours not to follow the dangerous path adopted by India and not to respond in kind.

Kohl avoided committing Germany to the US lead on sanctions, saying Germany would examine the decision, which France and Russia have opposed. German foreign minister Klaus Kinkel said any sanctions would depend on the 15-member European Union. German sanctions would be carried out in conjunction with the European Union, he told reporters. The European Union expressed dismay and concern over Indias nuclear tests, saying the move could destabilise the security situation in South Asia.

On Tuesday, Clinton had received a letter from Prime Minister Atal Bihari Vajpayee outlining his reasons for the tests. In a copy of the letter published by the New York Times, Vajpayee said: I have been deeply concerned at the deteriorating security environment, specially the nuclear environment, faced by India. Vajpayee pledged to work to promote nuclear disarmament and said the tests are limited in number and pose no danger to any country which has no inimical intentions toward India. US officials said the handling of the US response to the test was extremely sensitive, and could affect US-India relations for the next 10-20 years.